Rates closed up, in part as an opposite reaction to the stock market, and in part, preparation for tomorrow’s Speech by FED Governor Frederic S. Mishkin. Profit taking also impacted rates. The 10-year Treasury closed today at 4.670% which is +.016% higher than Wednesday.

Governor Mishkin’s speech is titled, “U.S. Economic Outlook”. It will be given at The Levy Economics Institute, Bard College, Annandale-on-Hudson, New York; at 12:30 p.m. EDT on Friday.

Speeches by FED Governors are hard, if not impossible to predict. Still, the market is of course concerned that he may l reignite inflationary fears.

Yes, this week’s CPI and core-CPI numbers were at or lower than expected. While CPI is the most popular inflation measure, it is only one of many inflation indexes. The FED prefers to use the Personal Consumption Expenditure numbers. Those have consistently ranged around 2.1% to 2.3%. They have been above the FED’s targeted 2.0%. No, it does not sound like much of a difference, it is to FED governors.

There is also the theory by some the upward move in rates corresponded to the upward movement in the stock market. The Dow Jones Industrial Average posted only modest gains +4.79. Broader based, and therefore more accurate stock indexes like the S&P 500 (-1.77) were actually lower. The important thing as far as bonds are concerned is the volume, which was high for the day. Funds moved out of bonds and into stocks.

The economic data should have moved rates lower, and did at the markets opening.

Bonds initially responded to a higher than anticipated Initial Jobless claims. Economists were expecting 320k to 325k workers to file for unemployment insurance last week. 327k did, indicating a weaker jobless market.

LEI was at the low end of expectations at +0.1%.

The Philadelphia Fed Survey was far lower than predicted. The market was looking for a 1.0 to 3.0 reading.

None of the lower than expected economic data was strong enough to keep rates lower.

TOMORROW, 20 APRIL 2007

There are no significant items. The only market moving event will be the afore mentioned speech by FED Governor Frederic S. Mishkin.

[Publisher’s note: In an attempt to clean up our blog, we will post all three outlooks on Monday only. We will post an outlook on days when one is modified.]

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com